RPT-UPDATE 2-Moving on from milk scandal, Fonterra ties up with China's Beingmate

(Repeats for screen clients)

* Fonterra to take up to 20 pct stake in Beingmate

* Beingmate to distribute Fonterra's Anmum formula in China

* China tie-up Fonterra's first since 2008 melamine scandal

By Naomi Tajitsu

WELLINGTON, Aug 27 New Zealand's Fonterra on
Wednesday said it will take a stake in Chinese baby food and
formula maker Beingmate Baby and Child Food Co. Ltd in the dairy
giant's first tie-up with a Chinese processor since its
involvement in a tainted infant formula scandal in 2008.

The tie-up continues a trend of foreign dairy producers
partnering with established Chinese players to grab greater
shares in China's fast-growing dairy market. French dairy giant
Danone SA in February paid $665 million to lift its
stake in China Mengniu Dairy Co Ltd.

Fonterra Cooperative Group Ltd, the world's largest
dairy exporter, said it would take a stake of up to 20 percent
in Beingmate, China's biggest maker of infant milk
formula, at 18 yuan per share. That is a 25 percent premium to
the stock's last closing price.

Its total investment in the partnership came to about $514
million, including proceeds from selling Beingmate a stake in an
Australian plant, Fonterra said.

The cooperative also said it would invest about $463 million
to boost dairy processing capacity in New Zealand.

Chief executive officer Theo Spierings said Fonterra was
moving on from a 2008 scandal when Sanlu, its then-partner in
China, was found to have added a toxic industrial chemical
called melamine to bulk up infant formulas. Six children died
and thousands fell ill due to the contamination.

"China is a completely different environment now, Beingmate
is a completely different partner ... and we are also completely
different from where we were five, six years ago," he told
reporters.

Burned by the Sanlu disaster, the New Zealand dairy giant
has been accused by some analysts of being slow to enter China's
branded infant formula market, which research firm Euromonitor
says could double to $31 billion by 2017.

HITTING THE SHELVES

Fonterra supplies wholesale infant milk formula to Chinese
companies, which sell it under their own brands, but until
recently it hadn't marketed its own Anmum infant formula to
consumers in the world's second-biggest economy. Under the deal,
Fonterra will gain access Beingmate's vast distribution channel
for Anmum.

Spierings said Beingmate's role as China's biggest domestic
supplier of milk formula and its clean track record made it an
attractive partner. Beingmate's brands, which include Love+ and
Champion, have about 10 percent of the market.

"Beingmate have pretty good distribution and are definitely
known in the market, so this is probably going to help
Fonterra," said Ben Cavender, a Shanghai-based principal at
China Market Research Group.

"It could be a big money maker for them but they are also
coming into a very competitive market now with consumers that
are much more savvy than they were three, four years ago."

ANZ rural economist Con Williams said Fonterra was cautious
about China, after the company was heavily criticised for
failing to blow the whistle on Sanlu sooner and more loudly.

"It got burned with Sanlu so it wasn't in a hurry of getting
back into China," he said.

"There are (product quality) challenges, but they must be
pretty confident that they can navigate those."

China has been dogged by food safety issues with foreign
firms coming come under strong scrutiny.

A year ago Fonterra said it had found a potentially fatal
bacteria in one of its products, triggering recalls of infant
milk formula in markets including China. Tests later found the
initial finding was incorrect.

Danone lost customers last year in claims of high prices,
bribery and the Fonterra food safety scares. Last week, U.S.
foodmaker H.J. Heinz Co was forced to recall some of its infant
food products because they were found to contain excess levels
of lead.

China is a crucial market for Fonterra, as the world's No. 2
economy imports about one quarter of New Zealand's total dairy
exports to feed growing demand for milk products, particularly
milk formula, from the country's booming middle class.
(1 US dollar = 6.1475 Chinese yuan)
(1 US dollar = 1.1966 New Zealand dollar)
(Additional reporting by Adam Jourdan in Shanghai; Editing by
Stephen Coates)

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